Tuesday, February 28, 2012

Gasoline Enigma....
I have a marketing degree from NTU, a BBA if you will. (I suppose I am a snob by the Rick Santorum definition.  Oh by the way, Reactionary Rick has a BA, MBA and JD, which means with three degrees, by his own definition, he is three times the snob I am.)   But I digress.
Required for my snobbish degree was a year of basic accounting.  Accounting is not my forte, and I generally hated every minute of the class. There was a lot of scribbling on lined column paper and math.  I tried to get through the class with the least effort to pass, and that worked.
However, there were things that I learned just by being in attendance.  One of the things I absorbed was the concept of "Cost of Goods Sold".  They used widgets as the product in every example so I will too.  Lets say over the last 30 days the wholesale price of Widgets had fluctuated between $2.45 and $1.95 in price. Suppose your business had bought a lot of widgets at the lower price than then some more at the higher price.  Your profit is the difference between what you paid for the widget and what you sold the widget for minus expenses because what you have in inventory is made up of different wholesale costs. Obviously you would make more money on the widgets you purchased at the lower price even if the selling price was the same. To figure what the widgets actually cost you had to average the fluctuation of the wholesale costs. (I told you the class was boring...)
Here is my point.  Gas Stations get gasoline to sell no more than once a week. That means they have an inventory in their storage tanks that is made up of gas they bought at least a week ago.  Technically a jump in the price of gasoline on the production (wholesale) level would not be felt at the retail level until at least a week later when they have to buy gasoline at the higher price.   What we are buying at the pump is wholesale gasoline purchases at the lower price so the retail price should remain constant for a week
That is not the case in reality.  The minute the price of a gallon of crude oil goes up, they change the price at the pump immediately. The price here in California has gone up daily, ever increasing so that we are knocking on $5.00 a gallon right now. But as we pay higher prices, the gas we are buying was purchased at a lower price.  The retailers make a wind fall profit immediately.  
Transversely, when the price of gasoline drops at the wholesale level, it is a week before the lower prices are reflected at the pump.  I know this not just bad accounting this is a fleecing of the American public. I have no suggestions on how to avoid getting fleeced when you have to drive a vehicle. All I know is that we should be aware of it and know that it is greed and fraud, and that we are being blackmailed at the pump.  Those Bastards.
As you were,


Anonymous said...

Jay: I really enjoy your blog, as they are honest thoughts from a highly creative person on a wide variety of topics. You normally make your point quite eloquently and with such heart, which is why I hate to see you stoop to petty name-calling like any elementary school student would do. Don't worry, I'm *not* a Santorum fan, but when I see smart people resort to that, I cringe, because it throws away the credibility of the good arguments you have. Why not elevate the level of discourse, rather than fighting trivial thinking on its own level. No insult intended here, just a well-meaning fan.

Bob Conrad said...

I am not for "name calling" either, but when I have something to say that I think is important I usually sign my name to it.
Love your blog Jay.